Economic risks rise but investor risks fall

Kia ora,

Welcome to Wednesday's Economy Watch where we follow the economic events and trends that affect New Zealand.

I'm David Chaston and this is the International edition from Interest.co.nz.

Today we lead with news the global economy is stumbling but central banks are covering investor risk downsides.

But first, job openings in the US were expected to rise in December but instead they recorded a sharp fall.

And Boeing scored no new orders for airplanes last month, the first time it has come up empty-handed in January since 1962.

American household debt rose by +US$600 bln in Q4-2019 to take overall household debt to US$14 tln for the first time. The rise was led by more housing debt which is now approaching US$10 tln. Household debt now exceeds 67% of American GDP.

And the Fed said it sees the US economy operating at a "moderate" level at present. In particular, they see consumer spending easing off. And they say they are watching the coronavirus "closely".

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In China, the semi-official death toll from the coronavirus outbreak is now 1018 and rising. A week ago it was 492, so we are still doubling every seven days. 96% of them are in Hubei Province. The virus has now been officially named as Covid-19, and officials are raising the idea that it might peak soon. In China, a monumental effort is underway to insulate Beijing from the epidemic.

To keep their economy functioning, the Chinese central bank added a massive NZ$200 bln in liquidity on Monday. And that was on top of the mammoth effort earlier in the month of almost double that.

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In the UK, their economy saw no growth in the final three months of 2019 from the prior quarter, as manufacturing contracted for the third quarter in a row, and the service sector slowed. Year-on-year their economy grew by just +1.1%.

In Australia, the widely-watched NAB business confidence report shows there is very little, to no growth in their private sector businesses at present.

But at least the Aussie's are getting gains out of their key housing markets with estimates of a +10% rises in house prices. This is exactly the behaviour that low interest rates generate.

Later today in New Zealand, all eyes will turn to the RBNZ who are reviewing our official interest rate and monetary policy settings. Let's hope they don't compound the Aussie low-rate mistakes here.

Worldwide, equity markets turned in a modest gain everywhere yesterday, and so far today. They are all counting on central bank liquidity injections to support risk, and seeing no downside even if the underlying economies shrink.

The UST 10yr yield is at just on 1.59% and a +4 bps rise from this time yesterday.

Gold has fallen today, down -US$9 to US$1,565/oz.

US oil prices have made a small advance today and are now just over US$50/bbl. The Brent benchmark has also firmed to just under US$54/bbl.

The Kiwi dollar will start today firmer at just on 64 USc. On the cross rates we are marginally softer at 95.4 AUc. Against the euro we holding at 58.6 euro cents. That leaves our TWI-5 broadly unchanged at 69.7.

Bitcoin has made another run up over US$10,000 and is now at US$10,233 which is a +4% rise in a day.

You can find links to the articles mentioned today in our show notes.

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